Electric vehicle sales continue to grow at an elevated rate and substantially higher than global GDP. In China, electric vehicle (EV) sales have grown by approximately 37.5% in the year-to-date period through September. EV sales in September were at record levels, suggesting that the normal end of year seasonality is taking hold in China. Historically, more than 60% of annual Chinese EV sales occur in the second half of the year.

In the United States, electric vehicle sales grew by approximately 63% in the quarter, compared to the prior year period and have grown by approximately 66% in the year-to-date period. EV sales reached over 1 million units in the year-to-date period through September, a milestone, and 2023 is on track for pure battery electric vehicle sales to also reach over 1 million units. Starting in January 2024, the United States subsidy regime will shift to a point of sales system, such that the $7,500 government incentive will be provided at the time of purchase as opposed to a tax credit, which should improve customer affordability for qualifying electric vehicles.

In Europe, electric vehicle registrations grew by approximately 35% year-over-year, as compared to 30% in the year-to-date period. The fastest growing regions in 2023 include Belgium, Finland, and Greece. German battery electric vehicle registrations have grown by 42% year-to-date as compared to a 43% decline for plug in hybrid vehicle sales. Battery electric vehicle registrations have grown by 47% in Europe, as compared to 5% for plug-in hybrid vehicles, internal combustion engine registrations of 12%, and diesel of -5% in the year-to-date period.

Bloomberg New Energy Finance (BNEF) estimates that demand from the energy storage system (ESS) sector in GWh will grow by nearly 200% year-over-year in 2023. Energy shifting is representing the biggest demand growth in 2023, as provincial mandates in China require wind or solar projects to be utilized with energy storage. BNEF predicts that 79% of ESS battery storage will use lithium-iron phosphate (LFP) chemistries and retain leading market share for the rest of the decade.

Price reporting agencies report that lithium prices declined by approximately 45% in the third quarter. Spot lithium carbonate prices in China were $22,500/tonne at the end of the quarter although prices outside of China remained at much higher levels. Korean import data showed that September carbonate prices stood at $32,500/tonne and hydroxide prices stood at $41,500/tonne, suggesting higher netbacks outside of China and contract levels trading at a premium to spot tonnages. Channel checks and third-party reports have commented on certain higher cost parties taking downtime and maintenance in China as a result of the price decline. LRC believes that spot prices are at or near marginal cost economics. On October 24, Posco Holdings, one of the leading chemical companies in the world and a major lithium buyer, commented that they believe that lithium prices are close to a bottom, with lithium prices unlikely to fall below $20,000/tonne, as reported by Bloomberg.

Lithium demand is tracking to grow by more than 25% year-over-year in 2023, led by electric vehicle sales and robust energy storage deployment. Incremental supply from Zimbabwe and higher cost Chinese producers are adding more tonnes at the margin to the domestic Chinese market that is discounting Chinese material relative to other geographies. Due to the growing demand and associated supply, cost curves continue to steepen throughout the industry, presenting upward pressure on capex intensity. LRC's focus on high-grade, low-cost operations should benefit from the steepening in the cost curve over the long term.